One of the fastest-growing areas of technology continues to be cloud computing.
After the term was coined 15 years ago by former Google CEO Eric Schmidt, cloud computing – networks of remote servers hosted on the internet to store, manage, and process data – has exploded into a $445 billion industry, and is expected to more than double by 2026.
Here are six cloud companies, including a Canadian firm, that have strong growth and are well-liked by analysts.
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by Michael Adams, Contributing Writer, Kiplinger
Arista Networks
- Sector: Information technology
- Industry: Communications equipment
- Market value: $41.5 billion
- Consensus analyst rating: Buy (23 analysts)
Arista Networks (ANET, $135.03) was founded in 2004. The company specializes in multilayer network switches, which are needed for software-defined networking – an important component of cloud computing.
ANET’s client list includes a roster of internet companies, service providers, financial services organizations, government agencies, entertainment companies and more.
With a trailing one-year return of 87.7%, Arista Networks stock went on a tear this year. In fact, the stock jumped 20% alone the day after the company’s Nov. 1 earnings report.
Since then, however, ANET’s share price has been relatively flat, hovering near a mid-December record high around $139. There’s plenty more fuel left in the tank to make this one of the best cloud stocks for investors in 2022.
For starters, the company is heading into 2022 with momentum.
In addition to delivering record revenues of $748.7 million for the third quarter, with record adjusted earnings per share of $2.96, ANET is “experiencing strong demand for our pioneering client to cloud networking portfolio across all of our customer sectors,” said CEO Jayshree Ullal.
Plus, according to Koyfin’s surveys, four analysts currently rate this stock a Strong Buy, seven a Buy, 11 a Hold and only one a Strong Sell. That’s enough for Koyfin to consider this stock an overall Buy.
William Blair’s Jason Ader has an Outperform rating on the stock, which is the equivalent of a Buy. ANET still has “best-in-class technology, an industry-leading operating model and an enviable growth rate,” he wrote in a recent note.
Hewlett Packard Enterprise
- Sector: Information technology
- Industry: Technology hardware, storage and peripherals
- Market value: $19.5 billion
- Consensus analyst rating: Buy (24 analysts)
In 2015, Hewlett-Packard spun off its business-focused server, storage and networking operations into Hewlett Packard Enterprise (HPE, $15.08).
Now, HPE didn’t soar out the gate. In fact, the company’s share price dropped roughly 20% in its first three months as a standalone firm, bottoming near $7 on Jan. 20, 2016.
However, six years later, with a trailing one-year return of 24.4%, there are good reasons for investors to have HPE on their list of the best cloud stocks heading into 2022 and beyond.
For starters, the company currently has an overall Buy rating from Koyfin’s survey of 24 analysts. That includes five Strong Buy ratings, eight Buy ratings, nine Hold ratings, one Sell and one Strong Sell.
Koyfin’s surveys also reveal a 16.1% 12-month return potential for HPE, based on analysts’ average price target of $17.50. And on top of that, the company currently pays a 3.2% dividend – more than double the yield of the S&P 500.
Of course, with regard to cloud computing, HPE offers GreenLake Cloud Services. These provide HPE’s clients with an on-demand IT infrastructure to be used for machine learning (ML), big data, private cloud, data protection and more.
In the company’s fiscal fourth quarter, HPE’s GreenLake orders were up 46% year-over-year (YoY) and its as-a-service annualized revenue run-rate (ARR) rose 36% from the year prior.
Additionally, the firm added more than 300 GreenLake customers in fiscal 2021, bringing the total customer count to 1,250. And contract value for GreenLake grew more than $1.5 billion last year, with the total now exceeding $5.7 billion.
“Our momentum is strong as we enter fiscal year 2022 with a strategy more relevant to customers than ever before and a sharp focus on execution,” added Neri.
Shopify
- Sector: Information technology
- Industry: IT services
- Market value: $167.6 billion
- Consensus analyst rating: Buy (44 analysts)
More than 1.7 million businesses in approximately 175 countries use Shopify (SHOP, $1,323.40) to manage inventory, process payments, fulfill orders, access financing and more.
And as one of the world’s largest e-commerce platforms, Shopify is a major user of Alphabet’s (GOOGL) Google Cloud platform.
As such, Shopify occupies an important place on this list of the best cloud stocks for 2022.
“Shopify is well positioned as the leading cloud-based commerce platform,” says Baird analyst Colin Sebastian (Outperform).
SHOP “remains in the early stages of a large market opportunity, and is leveraged to extremely attractive growth industries (e-commerce and cloud),” he adds.
In fact, Shopify’s “merchants cumulative gross merchandise value doubled, going from $200 billion in June 2020 to crossing $400 billion at the beginning of October,” said President Harley Finkelstein on the company’s third-quarter earnings call in late October.
And with thousands more merchants integrating into Shopify’s Facebook, Instagram and Google channels, the company saw year-over-year total revenue growth of 65.6% in the first nine months of 2021.
Of the 44 analysts surveyed by Koyfin, five rate the stock a Strong Buy and twenty say Buy. Seventeen analysts call Shopify a hold, while just two rate it a Strong Sell. Overall, Koyfin considers SHOP a Buy.
Analysts surveyed by Koyfin have an average price target of $1,698.19.
That’s a potential return of 28.3% over the next 12 months.
Alphabet
- Sector: Communication services
- Industry: Internet content & information
- Market value: $1.9 trillion
- Consensus analyst rating: Strong Buy (48 analysts)
Alphabet (GOOGL, $2,834.50), with its Google Cloud services already achieving $13 billion in annual revenue, is the third-largest cloud computing company in the world.
In fact, it falls in line right behind Amazon.com’s (AMZN) Amazon Web Services and Microsoft’s (MSFT) Azure.
However, Alphabet is the only one of the “Big Three” to make this list of best cloud stocks due to solid financials pointing to a rosy future.
In GOOGL’s third quarter, the company said revenue in its Google Cloud division jumped 45% year-over-year to $5.0 billion.
In the company’s earnings call, CEO Sundar Pichai highlighted three reasons why this momentum is likely to continue into 2022 and beyond.
These include the company’s leadership in real-time data, analytics and artificial intelligence (AI); an open, scalable infrastructure; and Google’s ability to protect data against the rise in cybersecurity threats.
Not only that, but as far as Google Cloud’s sustainability goes, Pichai reminded investors on the earnings call that its customers benefit from operating on “the world’s cleanest cloud,” with “two-thirds of the electricity consumed by Google data centres in 2020 matched with local carbon-free sources on an hourly basis.”
The company plans on running its data centres and campuses with carbon-free energy by 2030.
The stock is rated an overall Strong Buy by Koyfin’s survey of 48 analysts. Fifteen of them rate shares a Strong Buy, 32 rate GOOGL a Buy and one rates it a Hold. None say it’s a Sell or Strong Sell.
Plus, even with the company’s hefty price tag, the analysts Koyfin surveyed still expect the stock price to increase 18.6% over the course of the next 12 months, based on their average price target of $3,363.06.
DigitalOcean Holdings
- Sector: Information technology
- Industry: IT services
- Market value: $7.8 billion
- Consensus analyst rating: Strong Buy (10 analysts)
With the smallest market value of all the cloud stocks covered here, DigitalOcean Holdings (DOCN, $73.74) might also be the most exciting. Koyfin’s survey provides a $116.44 average 12-month price target, meaning analysts expect to see a 57.9% potential return from DOCN in 2022.
Plus, of the 10 analysts surveyed by Koyfin, three consider the stock a Strong Buy, five call it a Buy and only two think it’s a Hold. Not one of the analysts surveyed considers the stock a Sell or Strong Sell.
That all adds up to an overall Strong Buy from Koyfin.
DOCN was founded in 2012, and is an up-and-comer in the cloud computing space. To be more specific, DigitalOcean offers a cloud computing platform for developers, start-ups and small-to-medium size businesses.
Its customers use the platform for everything from web and mobile applications to website hosting, e-commerce, media and gaming, personal web projects, managed services and more.
“Annual run-rate revenue increased sharply throughout 2021, and the company’s revenue growth has accelerated throughout the year,” say William Blair analysts Jim Breen and Erik Rayner (Outperform).
“We expect the company to sustain a 30%-plus growth rate in 2022 with multiple levers to drive growth going forward.”
In other words, DOCN is one of the best cloud stocks for investors to keep watch as we head into 2022.
All images: Getty Images